Question

Perfect Clean, Inc. provides housekeeping services. The following financial data have been provided.

Service Revenue

$80,000

Cleaning Supplies Used

22,000

Wages Expense

19,350

Office Rent Expense

5,150

Depreciation Expense—Machinery

550

Calculate the contribution margin and the contribution margin ratio. (Round your contribution margin to the nearest dollar, and your contribution margin ratio to two decimal places.)

A) $38,650; 48.31% B) $74,850; 93.56%

C) $60,650; 75.81% D) $32,950; 41.19%

Answer 1

A) $38,650; 48.31%

Step-by-step explanation:

The computation of the contribution margin and the contribution margin ratio is shown below:

Contribution margin = Service Revenue - Cleaning Supplies Used - wages expense

= $80,000 - $22,000 - $19,350

= $38,650

The variable cost is Cleaning Supplies Used + wages expense

And, the contribution margin ratio equals to

= (Contribution margin ÷ sales) × 100

= ($38,650 ÷ $80,000) × 100

= 48.31%